With rising numbers of passengers, traffic capacities and sales revenues over the last 35 years, the Low-Cost Airline business is a very successful concept for short and medium flights.
Would this Business concept work also for long haul flights? Low budget for long-haul flights is actually not a new idea, but the realization had many failed attempts.
Norwegian Air Shuttle and AirAsia X currently taking the challenge up again and fly long-distance flights across the Atlantic and Southeast Asia. The key question is, can the present Low-Cost Concept work over long haul sectors, and will they be more successful than their predecessors this time?
The main concept of Low-Cost model focuses on business and operational practices that drive down costs, includes operating at secondary airports, flying a single airplane type, increasing airplane utilization, relying on direct marketing and sales, single class concept, no frequent-flyer programs, and keeping manpower costs low.
Comparing to Network Airlines, Low-Cost Carrier reduced in average unit cost by 35 percent to 45 percent, mainly by focusing cost cutting on those cost sectors, which are directly under their influence.
The two charts above show the distribution of total operating expenses by low-cost carriers and network airlines. The highest costs for Low-Cost Carrier are lying there, which they cannot control or take direct influence on.
The charts below demonstrate the different cost distribution by Network Airline and Low Cost Carrier
The Table below list the main operating cost factors that can be influenced by an airline:
The feasibility of Low-Cost for long-haul Sectors will depend mainly on the ability of the Airlines to control the operating expenses.
Adapting Low-Cost concept for potential cost savings
The current Low-Cost Concept has proven to be a very successful business, can it be applied for long-haul sector?
The potential savings can be located mainly in:
Increasing Load Factors and Seat Densities
Most gains will come from high seat densities. A comparison to European Network Airlines shows that they have also high Passenger Load factors and dense Eco cabins, here in average – (source: AirlineProfiler)
Transatlantic Routes, average
Europe to Asia, average
Within Europe, average Network
Within Europe, average Regional
Average Load Factor Worldwide, all Ranges
High Passenger Load Factors and dense Seat-Configurations on long haul sectors is already implemented, and will continue. The Eco-Seating or Single Class Concept (especially for domestic or regional routes) is increasing, business class seating is reduced and expanded by Premium Economy. The First Class Concept is strongly reduced and many airlines re-considering the concept or even cancel the service completely. This factor will not provide Low Cost Carriers a clear and present advantageous comparing to Network Airlines.
Airframe-, Aerodynamic improvements, reducing fuel consumption
Cost reduction through utilization of aerodynamic improved airframes and more economical engines, can provide a large contribution to cost reduction.
Fuel represents approximately 50 percent of the total trip cost, for every carried tonne of fuel , 0,5 tonnes of fuel will be burnt to carry it. The Airframe- and Engine-Manufacturer predict for the short term Fuel burn savings of 2 percent to 4 percent, with new technologies in the long term, estimated fuel burn savings are predicted to be in the region of 10 percent to 12 percent.
The Boeing B787 is very fuel efficient airplane, therefore it is very likely that the Low-Cost Carrier will prefer to operate with this type of aircraft or similar (e.g. Airbus 350, Airbus A330 Neo, revamped B737 or A320 with extended range).
But to launch an attack on the long haul market, the Low-Cost Airline needs an adequate number of aircraft to be able to serve the required destinations with sufficient frequencies.
Boeing and Airbus are working flat out and have a long waiting list: within the next 8 years, the delivery of 657 Boeing B787 and 456 Airbus A350 is planned.
Also in planning are the revamped versions of narrow body aircraft like Boeing B737 and Airbus A320 as extended range versions, capable to cross the Atlantic, facing the same problem of a long production line.
In summary, for long-haul flights the aircraft efficiency and a lean airline fleet will play an important role, but due to the long aircraft production periods it will take years for a Low Cost Airline to build up an adequate fleet. This time span will be used also by the Network Airlines to upgrade their airplanes, convert fleets and modify business concepts.
Passenger traffic, Punctuality and Aircraft Utilization
Punctuality and high aircraft utilization are a key factor to run a robust operation and to create a cost-effective business. On the short- and medium-haul, Low-Cost Carrier made it to their strongest feature.
On long Haul sectors, network carriers already achieving a significant performance, in average 13-15 hours aircraft utilization and over 80 percent punctual flights. The possibilities increasing flight rotations are exhausted, because long haul flights needs longer turn around times for boarding, Loading, servicing and fueling. Longer flying hours can violate crew duty time regulations and run up against time zones and airport curfews.
Flying to less congested secondary airports will not be so easy, because the necessary infrastructure such as runway length, fire brigades categories, maintenance facilities, certified handling agents, handling support and the necessary ground support equipment could be not available.
To operate on primary international airports will not gain any savings, exactly the contrary, monopoly like status means higher fees, lower crew utilization, additional overnight costs will increase expenses and reduce crew productivity.
In summary, high performance with low operational expenses can hardly be combined, the Low-Cost Carrier will presumably face the same expenses as the incumbent airlines, because this costs are beyond their influential range or unavoidable.
Generating new traffic or diversion from other transportation mode
As outlined above, high passenger load factors (>82%) are essential for long haul operations, the question raises now is how will the Low-Cost Airlines manage to achieve this high load factors.
With the low fares concept, it was assumed that the Low-Cost Carriers stimulated new traffic in addition to network and charter airlines. According to our previous Low-Cost Market Study, we assume that the Low Cost Concept did not generate new passenger traffic but more by taking market shares from incumbent airlines, in particular the displacement of the regional carrier and charter airlines.
Generating more air traffic by diversion from other transportation mode is a possible option for domestic and regional flights, but not for international long haul destinations (e.g.transatlantic flights).
The Low-Cost Carriers must therefore gain market shares directly from the network airlines, because they have no evasive options.
Attacking the last stronghold of network airlines
The Low-Cost Carrier will focus destinations with the strongest traffic. The illustrations and chart below show the potential areas in which very probably the preferred destinations will be located.
source: Airports Council International
source: Airports Council International
At the time, it is assumed that the optimal flight duration should not exceed 6 – 7 hours.
Apparently, Jetblue, Air Asia and Scoot are flying up to 6.5 hours, but it seems to be more an exception. As the illustration above shows, the average flight time between the probable destinations is above 8 hours. In the mean time, Norwegian already operates longer and established a foothold in the transatlantic market, because they have a fleet of seven brand B787 and manage to keep the airplanes 17-18 hours per day in the air.
A direct implementation of the current LCC concept on long-haul sectors is ineffective. All operational advantages of the short- and medium- haul sectors and resulting cost savings remain without the desired results.
Estimated cost savings potential, if current Low Cost Concept will adapted for Long-Haul Sectors
To gain market shares on the expense of the incumbent airlines will be very difficult and will not remain without countermeasures.
The only possibility to get a foothold in to the market will be very low air fares , but on the long term it cannot be maintained, as long-haul flights are very expensive operations.
Overall, the present concept for long haul low cost airlines seems not having any differentiation in the next years from the incumbent airlines, mainly because of the specificities of the long-distance operations.
A new concept is necessary, which take into account the specificities of the long-distance operations, combining emerging aviation technologies and information technology, demand and supply –driven, flexible networks and aircraft management, focused on customer comfort service providing a mix of premium and comfort classes.
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